I’m in Awe of How Far the Scams & Stupidities around “Blockchain Stocks” are Going

This can happen only during the very late stage of a bubble.

It just doesn’t let up. UBI Blockchain Internet, a Hong Kong outfit whose shares trade in the US [UBIA], filed with the SEC to sell an additional 72.3 million shares owned by its executives. In other words, it isn’t selling the shares to raise money for corporate purposes, but to allow its executives, including CEO Tony Liu, to bail out.

This is happening after the company – which sports zero revenues and a disconnected phone number in its SEC filings – managed to get its shares to spike briefly by over 1,100%, pushing its market capitalization to $8 billion.

UBI Blockchain didn’t do an IPO. Instead, in October 2016, it acquired a publicly traded shell company registered in Las Vegas, called “JA Energy.” It then changed the name and ticker symbol to what they’re now.

Over the six trading days starting on December 11, 2017, its shares soared over 1,100%, from $7.20 to $87 on December 18, as the word “blockchain” in its name and sufficient hype and speculator-idiocy took hold. By December 21, shares had plunged 67% to $29. They closed on Wednesday at $38.50. At this price, it still has a ludicrous market cap of $3.64 billion.

In its prospectus for the share sale, filed with the SEC on December 26, UBI explains the overcooked spaghetti of its dreamed-up activities:

UBI Blockchain Internet Ltd. business encompasses the research and application of blockchain technology with a focus on the Internet of things covering areas of food, drugs and healthcare. Management plans to focus its business in the integrated wellness industry, by providing procedures for safety and effectiveness in food and drugs, but also preventing counterfeit or fake food and drugs. With the advancement of the blockchain technology, the Company plans to trace a food or drug product from its original source within the context of the Internet of Things to the final consumer.

It explains that “management is uncertain that the Company can generate sufficient revenues in the next 12-months to sustain our operations. We shall need to seek additional funding to continue our operations and implement our plan of operations.”

It added that “due to the uncertainty of our ability to meet our financial obligations and to pay our liabilities as they become due,” the auditors in the financial statement for the year ended August 31, 2017, questioned “our ability to continue as a going concern.”

For the year, UBI had an operating loss of $1.83 million on zero revenues. It had $15,406 in cash, and: “In order to keep the company operational and fully reporting, management anticipates a burn rate of approximately $220,000 per month, pre and post-offering.”

Without any additional funding, the Company will be unable to operate. Therefore, if we are unable to generate sufficient revenues, we must raise additional capital in order to continue operations in order to implement our plan of operations.

Alas, all of the shares will be sold by existing shareholders. The company “will not receive any proceeds from the sale of the common stock by the selling stockholders.” So even after the sale of the shares, it will have no cash to operate on.

The selling shareholders are the CEO Tony Liu and five other “individuals.” Speculators who buy these shares will hand their money to those individuals – not the company. And the company still has nothing, no revenues, no business model, no cash….

This wasn’t the only outfit to leverage the word “blockchain” to create hype and extract billions from gullible speculators.

There’s Longfin [LFIN]. The company went public in the US on December 13, 2017. In its SEC filing, it said it had revenues of $298,786 in the year 2017 and was sitting on $75 in cash. What sent the stock soaring 2,700%, from $5 to $142.82 in a few days, and gave it briefly a market capitalization of over $7 billion, was the December 15 announcement – an elegant and apparently very effective mix of gobbledygook, hype, and silliness that started out like this:

Longfin Corp., a leading global FinTech company, announces the acquisition of Ziddu.com, a Blockchain-empowered solutions provider that offers Microfinance Lending against Collateralized Warehouse Receipts in the form of Ziddu Coins.

What actually happened, according to Longfin’s SEC filing: Longfin bought an asset called “Ziddu.com” from Meridian Enterprises, a Singapore corporation, 95% of which is owned by Longfin’s CEO and chairman.

On Wednesday, Longfin shares closed at $59.95, down 58% from its peak a few days ago.

This total insanity over outfits claiming to have a blockchain-related activity has been an ongoing movement over the past few weeks and months.

Shares of Digital Power Corp. [DPW], a dotcom-bust survivor, if barely, soared 880% from $0.56 on November 21 to $5.50 on December 18, though its shares have since plunged to $4.05. The company makes lowly power supplies for computers, but after it announced that it would aim its power supplies at cryptocurrency miners, its shares took off.

There is a gaggle of others with similar trajectories: Beverage-maker Long Island Iced Tea [LTEA] soared 280% within seconds after it announced that it would change its name to Long Blockchain; also Riot Blockchain, Seven Stars Cloud Group, Siebert Financial Corp, among others. They all have minuscule or no revenues, though their combined market capitalization is many billions.

That these companies get away with this, that in fact speculators fall for this crap, that they’re stupid enough to bet what are in aggregate many billions of dollars in a matter of seconds after “blockchain” flashes across their screens, is a sign of just how far the global flood of liquidity has befuddled the minds of these speculators and turned them into knee-jerk betting automatons. This phenomenon happens only during the very late stages of a bubble. But going back over the last three bubbles and crashes, to 1987, I have never seen anything this crazy. This is truly awe-inspiring.

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90 comments for “I’m in Awe of How Far the Scams & Stupidities around “Blockchain Stocks” are Going”

Duncan

Dec 28, 2017 at 2:28 am

Do you think the trading Algos are running on buzz words like ‘Blockchain’ And ‘crypto currency’ when lighting up investment choices. These examples are outrageous – no sane investor would fall for this. You therefore have to wonder whether the ‘currencies’ themselves and companies which use their names are being bought purely off the back of a buzz in activity around these phrases, which in turn the algos use as buy indicators.

Paulo

Dec 28, 2017 at 10:09 am

It must be algos running on buzz words.

There cannot be that many crzay stupid people out there all willing to part with their money at the same time. It is astounding.

As I read this article, particularly the part where they actually state, “in order to continue operations in order to implement our plan of operations”, all I could think is that this is “Econ Speak”. And Wolf and others are so right, it is simply the words Blockchain or Crypto, etc that is doing it.

It is just so blatant. …regards

RepubAnon

Dec 28, 2017 at 1:19 pm

I’m setting up a new company selling blockchain-based Beanie Babies. Now, if I can only get my stock listed…
(/snark)

Javert Chip

Dec 28, 2017 at 2:02 pm

My bet says this has zip, zero, nada, zilch to do with “Algos”, and everything to do with human greed.

My experience is only 5-10% of all active investors can actually read a income/balance sheet. My guess is almost 0.00% (except Wolf) even tried to read UBI Blockchain Internet’s financials.

Algos, indeed. In the words of Flip Wilson, the devil made them do it.

Absolutely. When you can’t believe that it could be humans when it could be bots/robots/etc, it’s usually humans.

Mike Earussi

Dec 28, 2017 at 2:30 am

Other People’s Money. If it was their money they’d care, but since it’s not they don’t.

This is the natural outcome of years of free money pouring through the system–no sense of responsibility for its handling, and if they’re too big to fail the Fed will just bail the out. The mentality of “investors” (how can you be an investor if you only lose money?) today is closer to Lewis Carroll than Adam Smith and will continue to be until it all blows up.

Unfortunately, when they go they’ll probably take the rest of us with them.

Guido

Dec 28, 2017 at 2:41 am

“They all have minuscule or no revenues, though their combined market capitalization is many billions.”

Replace the word ‘revenues’ with ‘profits’ and you have all the hot stocks and the unicorns in the list. How are they different from anything these Blockchain companies? At the end of the day, neither is making any money and neither has any prospects.

Now consider this:

“That these companies get away with this, that in fact speculators fall for this crap, that they’re stupid enough to bet what are in aggregate many billions of dollars in a matter of seconds after “blockchain” flashes across their screens, is a sign of just how far the global flood of liquidity has befuddled the minds of these speculators and turned them into knee-jerk betting automatons. ”

Replace Blockchain with big data and what’s so different from what is happening in the valley today?

The only difference is these Blockchain companies are not the anointed ones from ivy leagues and they cut to the chase. The pariahs are doing what only the elites are supposed to do and that is what is wrong here.

Petunia

Dec 28, 2017 at 7:59 am

The difference between big data and blockchain is the way the databases are designed and used. Blockchain has a 1K bytes block of data as its basic record and is used for a singular purpose. Big data can be just the blockchain or many databases with different types of records all being surveyed looking for matches.

Ed

Dec 28, 2017 at 10:12 am

Big data is generating hundreds of billions in sales and big profits. Amazon doesn’t seem to want profit, but even they have been forced into the black by AWS. Other companies that want profit are making it

The telling evidence is when Intel turns its battleship to try to grab some of the business (obviously the big system/software companies are already there)

Enrique

Dec 28, 2017 at 12:51 pm

“Big Data” was “Blockchain” before Blockchain was Blockchain.

Just a scammy buzzword to facilitate these professional money-raisers’ efforts at fleecing VC idiots out of their money.

Probably will be a use for something like Blockchain in the future. As “Big Data” has its uses. But for now it feels to me like 95% criminality 5% speculation.

These algos are really nothing other than a generation-later version of some Boiler Room such as one could see on Series 2 of the Sopranos. “Push Wobystics!” (smack!)

Kraig

Dec 29, 2017 at 1:33 am

There are plenty of uses for blockchain that are not scammy or hyped things. Some uses we are on Delivering resources to those who need them most in the aftermath of disasters,avoiding blood diamonds in diamond industry,stabilising Venezuela’s inflation rate,lowering cost of international transfers,massive potential as part of a smart grid.helping with trading of distributed renewables and automatic load balancing. Problem is now the name is dirty serious applications are inventing their own terminology or calling it a distributed ledger (which it is) so it’s not always clear where blockchain is used.

Tom

Dec 30, 2017 at 12:46 pm

Load balancing, renewables? Lots of buzzwords there, Kraig. Are you in the bullsheiss business?

Rates

Dec 28, 2017 at 5:08 pm

People throw words like Big Data and Blockchain as if they are similar. They are not. Big Data is just various techs to process huge amounts of data. Big Data uses distributed computing concepts as its basis and so does Blockchain, but that’s like saying they both use computers.

There are no links between databases in Big Data unless you make them so. The source and target can evolve independently.

If your point is that they are both just hypes. Maybe. Let’s say Big Data is able to come up with a incontrovertible proof that human beings are scum
(global warming anyone), would it mean anything? Given the number of people who continue to deny the fact, I guess not. No technology can overcome the delusion of human beings.

Heck, Jesus tried, and he failed. So did a whole lot of other saints, etc.

jest

Dec 28, 2017 at 2:43 am

Great Article~ These guys seem like criminals fanegaling around in the name of Blockchain. I can just imagine when the dust finally settles there will be so many lawsuits filed which really amazes me because no one twisted there arm to buy these stocks at utopia prices.
I hope no one buys a single share from them..if they read your article they surely won’t! Good Going.. A good guy still left in the world! Wow!

MC01

Dec 28, 2017 at 3:57 am

Digital Power Corporation is a living fossil, as proven by their website which is a relic from 2013 and by the fact before they inserted the magic “blockchain” word their role in stock markets was that of a comatose penny stock, floating around 60c.
Differently from other Dotcom survivors such as Corsair they haven’t been able to adapt to the new century and have plowed along chiefly by selling power units for use by government agencies.
If you really wanted to buy a Digital Power power supply for your business you’d need to jump through hoops, while aggressive firms such TekPower and Delta Electronics will go to great lengths to make their products freely available to the average business and even private buyer.
In short Digital Power should be put in a museum for future generations to study.

But insert “Digital Power Corporation” in any search engine and it’s like being back in 1999.
Every “expert” will be touting what a great “buy” opportunity Digital Power is, especially at present “depressed” prices.
What is more astonishing is the company’s main breadwinning activity (government contracts) is not mentioned depite being what allowed the company to survive so long.
Since I am curious by nature and I had to cancel a business appointment due to foul weather, I did a short search about power supplies for “cryptocurrency miners”. They appear to be commercially available, standard 750-1500W power supplies, with some of them experiencing a dramatic spike in price once they were named in conjunction with the magic word “blockchain” despite being… well, standard power supplies.
As usual there is no groundbreaking technology, just a lot of hysteria.

In my younger days I would have probably jumped aboard this to make some money and then make off like a bandit, but these days I consider the entertainment value even more precious. Plus God only knows if I am not already speculating too much in other financial junk.
This is like watching an unfolding Hogarthian cycle without having to pay for the privilege of ownership.

alex in san jose AKA digital Detroit

Dec 29, 2017 at 12:10 am

MC01 – this sounds like the switch over to digital TV and in Radio Shacks across the nation, customers were being told they needed a “digital” antenna, which is just a regular antenna with 3X the price.

d

Dec 28, 2017 at 4:35 am

Wolf

The Obscene Amount of QE cash looking for work has Dostorte dteh Market.

Hence in a QE Market the Scam Bubble will logically have longer to run than normal.

These Scammer are doing the fed’s work, indirectly. Eliminating excess liquidity, at the same time as they line their pockets.

van_down_by_river

Dec 28, 2017 at 12:13 pm

You are exactly right, the people running these scams are following the exact same playbook as the dotcom scams – simply change the name of a company to include a hot buzzword and watch the cash roll in.

But why are central banks causing this to occur over and over again? Why are central banks forcing people to throw their hard earned money into extreme speculative bets? What choice have they given people?

Every asset has been inflated by central bankers and therefore every asset has become a dangerous speculative gamble. Sure, betting on XYZ Blockchain Solutions is a ridiculous gamble, but if you get out before the collapse your “investment” pays off. How is this different than betting on the Nasdaq at 7000?

We don’t even know the magnitude of the stock market bubble because accurate stock index PE’s are no longer even reported. There are: GAAP PE’s, Adjusted PE’s, TTM PE’s, Forward PE’s but the financial press talks about PE without even referencing which PE they are discussing. And none of this accounts for the financial engineering that occurs and is used to distort even GAAP PE. GAAP accounting does not even require interest paid on bonds to be expensed against earnings. This means companies can borrow money to shrink the float without counting the interest cost against earnings. Good luck figuring out what a single company earns – much less an entire index – but you can bet it will be much less than reported earnings. If these companies are doing so great why are they borrowing money to pay their dividends? The entire investment world has become a scam – it’s only a matter of the degree.

Olympus had zero to negative earnings for 25 years yet all the while reported good earnings. This corporate balance sheet fraud was funded by cheap money, made possible by the Japanese central bank, in the bond market. No one was charged with a crime. As Buffet says: we find out who is swimming naked when the tide goes out. The tide of easy money used to fund accounting fraud might never go out so people dance while the music plays. After all, the current money flood has been going on for nine years so maybe tides don’t go out anymore.

andoheb

Dec 28, 2017 at 6:57 am

back in the 1970s when gambling was being legalized in New Jersey, firms announcing that they were considering opening a casino often doubled or tripled overnight. So current madness not entirely unprecedented.

Mickey

Dec 28, 2017 at 7:16 am

So this proves that people buy stock on a whim without soending a minute on research.

How different is this from Amazon ot tesla, or netflix?

20 years and amazon shows minimal profits, but people buy the stock cause the company does a great job of delivering products ata a price lower than anybody else, mostly.

Who cares about pe ratios, or debt to equity, or the unique ability to grow revenues by over 20% and-yet not see any of that drop to the bottom line.

Buffett is right about one thing, at least, if he does not understand the businee why buy into it.

Javert Chip

Dec 28, 2017 at 2:34 pm

Mickey

Correct: 20 years and Amazon shows very little profit.

However, that is because Amazon makes the explicit decision to re-investe (almost) every cent back into the business, sustaining about 20% compound growth AND (pay attention – this is the hard part) Amazon has the very credible capacity to become very profitable if it choses to no longer invest in growth.

Uber & Tesla, Blue Apron (as examples) have no credible profitability plans (tooth fairy doesn’t count), and those companies (but not Amazon) rely on more and more rounds of venture capital funding.

I don’t believe Buffett’s ever said “he don’t understand technology”; his circa 1999 comment had to do with believing Microsoft’s (as an example) business plan had limited longevity & difficult defensibility of it’s competitive advantage, and viable technology stocks were difficult to identify before they are overpriced. Buffett is the largest investor in Apple, and he has admitted he mis-judged Google & Amazon.

Álvaro

Dec 28, 2017 at 7:19 am

You should read what Bitfinex’ed has to say about ‘illegal’ activities around Bitcoin:

Wash trading, painting the tape, ponzi schemes… You name it. A lot of what is happening with cyptos would be completely illegal in a regulated and not anonymous market.

The most important thing Bitfinex’ed says is that due to wash trading, valuations of cryptos will never fall, because they can be artifically pumped any time.

My personal opinion is that the bubble is already deflating but Bitcoin price hasn’t fallen yet due to market manipulation.

van_down_by_river

Dec 28, 2017 at 12:34 pm

Of course we all know there is no “wash trading” or “tape painting” going on by HFT in the stock market.

The old cliché thrown out by stock pumpers to “do your own due diligence” before buying is like saying build your own rocket to go to the moon. Earnings reports are opaque and often fraudulent fiction. No doubt someone read Enron’s earnings report before deciding to “invest”. All their due diligence showed Enron was a great investment. Information and truth are not distributed in earnings reports – we moppets know nothing.

Javert Chip

Dec 28, 2017 at 2:44 pm

Well, slandering all public companies as being as fraudulent as Enron is one way to justify not being able to read financial statements.

No multi-billon dollar enterprise can be accurately profiled by any existing or proposed set of financial statements – the GAAP & real-world management business judgements (reserve, write-offs, when do you cancel under-performing investments & cancel poorly received products) are involve intangibles that different sets of management would view differently.

This is a part of what an investor needs to understand about the business: the technical name for it is “risk”.

van_down_by_river

Dec 28, 2017 at 4:16 pm

“slandering all public companies” – are you for real?

The point was not that all companies are known to be committing fraud, the point is that the current system allows public companies to commit accounting fraud, without consequences, and it’s impossible to know which (if any) companies are honest.

For years GE, under Jack Welch, each quarter reported an earnings beat of one penny. Gosh that Welch sure was good at earnings guidance. Of course it was all a fantasy and when the easy money tide rolled out GE suddenly had to restate earnings going back years – not fraud?

There are numerous examples of companies “restating” earnings after the tide of liquidity recedes and many companies are found to be swimming naked. I don’t invest in individual companies for this very reason – these things go off like bombs without warning – suddenly a company will announce an earnings “adjustment” or “restatement” and reveal that they have been basically lying for years.

I buy only stock index ETF’s but I don’t hold them for long because I don’t know what the true earnings of any given index are. Financial engineering can be a nice term for lying about earnings. Example: IBM appears to do more financial engineering then computer engineering – looks fishy to me but I can’t know for sure and will never know by reading their earnings release. The dead rats in the walls are starting to stink and no amount of perfume can cover it up.

Javert Chip

Dec 29, 2017 at 12:59 am

Your words “Earnings reports are opaque and often fraudulent fiction…Information and truth are not distributed in earnings reports…”.

If you didn’t mean it, don’t say it.

There isn’t any such thing as an “investing safe place”; if you’re looking for the perfect investment, use a piggy bank. All investing involves risk, and there’s generally reward for properly managing it.

Kraig

Jan 10, 2018 at 12:07 am

Ironically this is where the blockchain could be useful. If all transactions where on the blockchain then a copmany would only have to disclose the public key for each wallet (internal department budgets,sales,payroll budget and so on. Then every transaction would be available to everyone with the internet. Let the crowd.spot the odd thing and do the due dilligence.

AGXIIK

Dec 28, 2017 at 7:26 am

When some ponzified propeller head slides up beside you, describing how he’s going to mine Quatloos on the dark side of Uranus; and give him your money, you can do 1 of 3 things.
1. Throw this charlatan down a mine shaft
2. Exit the scene and grab a cup of coffee somewhere
3. Buy hand over fist

Door #2 is the best.
An overprice cuppa joe at Starbucks might be seem mundane in light of the missed million dollar pay day, but in the end your only regret will be suffering through the misery of foul coffee.

Guido

Dec 28, 2017 at 11:28 pm

#1 may not be possible. The fella making the sale might have made the hole using a boring company he might own or he might have gotten a train to run in that hole to carry yuppie elites between Hollywood and San Francisco.

I’d say you should choose door #3. You might get to send your car to Mars in addition to making money hand over fist on those Quantaloos.

scott

Dec 28, 2017 at 7:43 am

Bitcoin Scam: Man Arrested After Making Over $1 Million Selling Chuck E. Cheese Tokens As “Bitcoins”

made over a million dollars selling Chuck E. Cheese tokens as Bitcoins on the streets.

Marlon had scratched off most of the Chuck E. Cheese engravements on the coins, and would write “B” on each coin with permanent marker.

This guys get jail time and corporations/shareholders get a huge payout. I see a post bubble movie on the horizon :)

Harambe

Dec 28, 2017 at 9:36 am

The website that originated that story only publishes satire.

scott

Dec 28, 2017 at 9:12 pm

I should have looked closer at the source and realized when:

“People are retarded haha”, said NYPD Officer Michael West, “My 8 year old son would know those weren’t bitcoins and lord knows he’s not the brightest”.

I fell in the Onion Trap

Si

Dec 29, 2017 at 11:07 am

So it’s not just crypto speculators who fall for “crap”, or are “stupid enough” to believe everything they read, eh? Maybe it’s just a human condition? :D

Álvaro

Dec 28, 2017 at 9:48 am

I’m sorry, fake news.

robt

Dec 28, 2017 at 10:35 am

Not fake news, satire.

Petunia

Dec 28, 2017 at 7:47 am

I totally agree that selling “blockchain technology” is nothing but a bunch of crap to scam the easily impressed and the technology challenged.

The biggest selling point for the scammers is that the blockchain is immutable, it can never be changed. Well, that’s a lie. It is harder to change a database across a number of computers, but not impossible. What they are really selling is the idea of no recourse, IF YOU GET SCREWED OR SCAMMED, TOO BAD. Take a wild guess as to why they want to instill that into their business models.

At this point, I think it is important to define what the blockchain really is, it is a database whose records are a 1K bytes block of data. The database can be thought of as write once then read only. Big deal. Any system administrator can override any and all of this on any one machine. Any network administrator can eventually change them all.

JB

Dec 28, 2017 at 11:47 am

yes Blockchain is a data base organizational model where nothing is deleted – kinda like a huge indelible audit trail . The IBM as/400 midrange had a similar function that could be activated on a file basis called journaling. Journaling recorded all record activity (i.e adds,deletes ,changes,before and after images) and could be queried. Here is a good article on this blockchain phenom although slightly wonky. https://www.cnbc.com/2017/12/26/ten-years-in-nobody-has-come-up-with-a-use-for-blockchain.html

Trouble is all the good applications need distributed storage and small cheap processing. Like say a pi or mobile iPhone.

Kent

Dec 28, 2017 at 12:09 pm

A little more complicated than that Petunia. When new blocks are encrypted, they use data from previous blocks as part of the encryption algorithm. So if you change an old block, it changes all the newer blocks. And because they all share the same data, anyone who screws up the encryption, it will never be able to communicate with the other servers, because they won’t be able to accept your data, since it can’t be encrypted correctly.

Not that I’m a fan. I agree that non-repudiation is the business model as well as the Achilles heal.

Petunia

Dec 28, 2017 at 2:10 pm

It is a little more complicated but do-able. I didn’t want to get into breaking the encryption, also do-able. You then have to backtrack a bit to reinsert but also do-able. Many with good computing skills can do it.

The reason the banks might get away with using blockchains is that they are using a “trusted” network of partners. Security by obscurity.

fajensen

Dec 29, 2017 at 1:18 am

Nah – The reason banks “can get away with” using blockchains is that they do understand financial regulatory requirements quite well.

Banks use a type of blockchain called a “Permissioned Ledger”, this is far a more efficient implementation than the “Proof of Work” type of blockchain that Bitcoin uses (with the added bonus that not all the transaction “validators” are in China). “Permissioned Ledger” works in the way that banks normally work – authorised people are allowed approve transactions on behalf of the bank.

For Banks, blockchain is no different than DB/2 or any other technology they already. It is a tool they use to operate their business. They expect an ROI on their tools.

Blockchain is a much neater way of doing an auditable record of ownership and implementing digital contracts – with blockchain this is possible in “one operation”. By using a blockchain, they can do continuous, incremental clearing of positions, with DB/2 it’s a nightly batch job.

Batch jobs are always scary affairs and the known cause of many, many IT disasters that take days and weeks to clean up (which we never hear about since The Expected is not News). With Incremental updates, the error hits immediately, there is only one transaction to correct during working hours rather than the customary Millions the “on-call” DB/2 specialists have to roll back overnight.

PS –
I am sorry, but, It takes *a lot* more than “good computing skills” to change the history of a properly implemented blockchain ledger. Like maybe a real breakthrough in Qantum Computing. Acausal computing (feeding bits from the future into “now”) would help a lot in making this “do-able” (quantum rules says that we can do this).

The maths on both cryptography and quantum information theory is pretty solid.

In any case, a 100% insecure blockchain inside a bank is no worse than the current DB/2 ledger implementation!

Si

Dec 29, 2017 at 11:10 am

” You then have to backtrack a bit to reinsert but also do-able. Many with good computing skills can do it.”
Only if those with good computing skills also controlled enormous sums of money equating to hundreds of billions of dollars, because that’s what it would take to alter the bitcoin blockchain.

Petunia

Dec 29, 2017 at 11:20 am

fajensen,

Regarding your comments about encryption, encryption can be broken and in some cases rather easily. The bs about large processors and quantum computing nonsense comes from those who want to use this as an excuse to fund large budgets. Most encryption can be broken using the same size computer that created it. Is is just one of the reasons Godel is my favorite mathematician.

BTW, I worked swift/chip transfers so I don’t quibble with your banking disaster recovery analysis.

d

Dec 29, 2017 at 3:14 pm

“Most encryption can be broken using the same size computer that created it. Is is just one of the reasons Godel is my favorite mathematician.”

It’s the “Time” Factor. The larger the breaker the swifter.

unit472

Dec 28, 2017 at 8:20 am

I used to dabble in biotech stocks and I remember a lot of buzz around ‘plant sterols’ There was a penny stock that called itself Sterol and it skyrocketed off the ‘buzz’ and the hope that ‘plant sterols’ could reduce cholesterol levels in humans.

Whatever the medicinal benefits may have been the problem was that anyone could go out and munch on a twig and ingest ‘plant sterols’. No Rx necessary. Now developing an enzyme that would allow humans to eat and digest wood might end world hunger and make Sterol bigger than McDonalds but the reality, as always, falls short of the promise.

Thor's Hammer

Dec 28, 2017 at 8:48 am

Exactly who is the stupid one here? The short term trader who lives with his finger on the sell button of his “portfolio” of digital fads that have netted him 1,000% profit this month after having covered his initial capital outlay? Or the person who wastes his time wringing his hands and posting the obvious— that these “investments” have no substance and are the modern equivalent of black tulips?

Thor's Hammer

Dec 28, 2017 at 9:47 am

ps: Unfortunately I fall into the latter category!

Paulo

Dec 28, 2017 at 10:30 am

Thor,

If this isn’t a Tulip then what is? Bio been done, tech been done, tranches up the yin yang and the ‘number’ today is just under 25,000 pts. Now the latest push are number/currencies (currency alternatives) that don’t really exist….people just want them.

I think in my wife’s filing cabinet we still have a deed to a piece of moon property someone once bought my in-laws. There are already investment opportunities for Mars vacations.

I think the only thing left is another run at a pill you add to water to make gasoline, and a perpetual motion machine. Maybe ‘never-age’ elixirs.

You have to admit, it sure has been interesting to watch this surge and it will be amazing to see the crash. Amazing.

To be honest, at this point I am looking forward to it. What ever happened to the idea of working hard, make prudent decisions, and over time a person will get ahead? This mania is the exact opposite of that. It’s like watching a show about Jonestown or Waco. It will get bloody and ‘the fools’ wil be those who went along on the ride.

I’ve spent most of my career building objects of exceptional beauty and durability. At this stage of economic progress the only people who can afford them are those who have accumulated wealth through activities that involved destroying the biosphere or standing on the neck of their “inferiors.” Their wealth has rendered them incapable of appreciating anything of lasting value. As it always has been, I as the creator received little more than some deflating pieces of paper for my efforts.

The Tweeter is the perfect symbol of American Values, with his 30+ bathrooms and gold plated toilets in his Winter Palace.

Paulo

Dec 28, 2017 at 1:37 pm

Yeah, I’m a builder of fine furniture and fine homes and I like who I am well enough. I guess.

Sounds similar.

I suppose we are the ‘peasants’ of the day, but that’s okay. There is not enough money to replace the feeling of creating and building.

By the way, I really wish to express my respect for the commentors on this blog. I am astounded by their knowledge and appreciate the civility, even in disagreement. Today, retired brokers and investors speak out, and the other day their were numerous Physicians writing about the medical system.

This is an amazing site.
regards

Si

Dec 29, 2017 at 11:13 am

“What ever happened to the idea of working hard,”….
It was destroyed in the 1970’s, since which time real wages have barely increased at all.

scott

Dec 28, 2017 at 8:49 am

Wolf, its funny to see all the blockchain ICO ads on this post. Do they count as views or do we need to click?

I see a ton of them too: “33x Bitcoin” says the one right now. I wish I got paid for them on a per-view basis :-]

You should see the inbox of the email I posted under the “Contact Us” tab – it’s full of news releases about cryptos and ICOs that they want me to promote.

Wendy

Dec 28, 2017 at 8:51 am

I can just hear the Fed saying “we do not anticipate the severe correction in cryptocurrencies to spill over into the equities market, it appears to be contained”. Here we go again.

Drango

Dec 28, 2017 at 9:32 am

Have no doubt that after the next stock market crash, Janet Yellen will shrug her shoulders and say “How could I have known?” And all of the economists who don’t know how the economy works will shake their heads in agreement. Economists still think economics is a science, and not the joke everyone else knows it to be ever since the last crash somehow happened out of the blue. You can learn more about economics reading this website than any economics textbook filled with worthless mathematical formulas.

RangerOne

Dec 28, 2017 at 12:06 pm

It is a science but for even the simplest model to be accurate, you basically need to model irrational human behavior. We will get there.

van_down_by_river

Dec 28, 2017 at 1:05 pm

Economics is not a science, it is social studies.

If we are going to put social studies majors in charge of the currencies I would prefer we choose history PHD’s rather than Economics PHD’s, at least history majors study facts (even if they have been altered).

Scientists study the physical world and formulate laws that govern reality. Economists invent narratives in an attempt to manipulate human behavior, they mostly use game theories and they are mostly wrong and self serving (witness Bernanke “working” for Citadel – a hedge fund that does a lot of HFT – corruption is legal in this country).

monday1929

Dec 29, 2017 at 7:49 am

Of course, Mr. Prechter’s “Socionomics” and Elliot waves are the models. Chart patterns endlessly repeat because they reflect irrational human behaviour. One can argue their usefulness in predicting the future, but retrospectively they clearly, to me, demonstrate a valid explanation of price activity. Why Prechter receives so little recognition for contributions to behavioural Economics is a mystery (perhaps from some multi-year-long incorrect Market calls?)

Thor's Hammer

Dec 29, 2017 at 3:22 pm

Economics is not a science or social studies, rather it is opium for deluded intellectuals.

If you want to see the best send off of the economics “profession” I’ve ever seen, sign up for Netflix and watch the Aussie series “Rake”. The episode where the rogue barrister defends a world famous Friedmanite economist who has turned to ethical cannibalism as compensation for the failure of his “science” to predict the Lehman collapse is priceless.

d

Dec 29, 2017 at 10:32 pm

“Economics is not a science or social studies, rather it is opium for deluded intellectuals.

Macro or Micro.

Macro Economics, is the study of Economic history, and the application of Economic theories in it.

To enable the projection of what “should”, a Normal Economy, if the State and Central bank take various action’s.

In another 20 Years time there may be a model for what happens in the US, in a QE economy where the State and FED do not cooperate and the QE liquidity is allowed to flow to paper assets and speculation. Instead of being put to “Work” In the real Economy.

Lee X

Dec 28, 2017 at 9:40 am

Central banks around the world have already set the globe on a path, they can not change. They can print currency to back up all the IOUs, that will not end well, or keep the IOUs coming, that will not end well. No tax reform will fix what all of them created, bitcoin is irrelevant here. The globe will have another great recession or depression, no matter what a string of one’s and zero’s do.

RD Blakeslee

Dec 28, 2017 at 9:43 am

“…leverage the word “blockchain” to create hype and extract billions from gullible speculators.”

From the website:
‘Ether is a necessary element — a fuel — for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations. To put it another way, ether is the incentive ensuring that developers write quality applications (wasteful code costs more), and that the network remains healthy (people are compensated for their contributed resources).’

Sounds like shareware to me, but it was good enough to go to 800 dollars a ‘coin’ (740 now). It currently has a market cap of 73 billion dollars.
From what I can gather, it allows you to make innumerable worthless tokens for people to invest in your ideas (such as crowdfunding) but have no equity in the enterprise.https://www.ethereum.org
If you want to donate to the non-profit Ethereum Foundation you ‘may’ get a free Unicorn coin as a reward. The Unicorn is apparently just for fun, and is stated to be worthless.

Tang

Dec 28, 2017 at 11:03 am

Yes we have a new generation of “tech entrepreuners”. They have zero knowledge of the Dotcom days and the subsequent fallout. The hype then www and the Dot.
Sun Microsystem advertising catch phase “We are the Dot in the Dot com”. Suddenly everyone jumps on the bandwagon. Everyone wanted the Dot. SunMicrosystems shares quadrupled. History continues to repeat itself with catchy phases and buzzy words. Evidently many willing to
“invest” after being “convinced” by authoritative main media frequent talk shows and repetitive reporting of success stories not really knowing that these are paid programs by interested parties to the broadcasting media.
They have all the angles to slant the reporting. They have all to gain. When you loose you hide away not wanting to be caught standing at the foolish corner.

no_free_lunch

Dec 28, 2017 at 11:09 am

Bitcoin was created as an currency alternative (cryptocurrency) to gov’t. fiat. Blockchain is the enabling technology. However, mostly because it’s not well understood, and has been going up, it has morphed into yet another financial asset bubble. Bitcoin and related assets have failed in the intended application, but rather have become part of the current “Everything Bubble”.

As the author stated: “This can happen only during the very late stage of a bubble.” We have an all-encompassing financial bubble with many/most assets as part of the underlying composition and structure. All of this thanks to central bank policies intended to re-inflate the global economy (read help their cronies) following the latest crash, as per usual, due to malfeasance by the players in our crony capitalist system. However, there are consequences to unconventional monetary policy. Malinvestment and rampant speculation due to yield-seeking in a ZIRP/NIRP world create only temporary asset appreciation. Debt expansion does not create wealth, but rather only further distorts the balance sheet. There’s nothing organic or healthy about this economic expansion cycle, and the resulting consequences are predictable and always destructive. We only need to look back to the GFC of 2008-09 for the most recent example. Moving from bubble to bubble is no way to run an economy. End the Fed. “Doing more harm than good since 1913.” TM

https://www.investopedia.com/articles/stocks/10/5-steps-of-a-bubble.asp
5 Steps Of A Bubble
1. Displacement: A displacement occurs when investors get enamored by a new paradigm, such as an innovative new technology or interest rates that are historically [ridiculously] low.
2. Boom: Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase.
3. Euphoria: During this phase, caution is thrown to the wind, as asset prices skyrocket. The “greater fool” theory plays out everywhere.
4. Profit Taking: By this time, the smart money – heeding the warning signs – is generally selling out positions and taking profits.
5. Panic: In the panic stage, asset prices reverse course and descend as rapidly as they had ascended.

See you on the other side. Buy gold. It is and has been a store of value for thousands of years, and will still be worth something in the aftermath. Anything hated by central banks is probably good for your financial well being.

Si

Dec 29, 2017 at 11:21 am

““This can happen only during the very late stage of a bubble.”
This is an interesting concept but doesn’t withstand cursory scrutiny…once one understands that fewer than 1.5% of the world’s population currently owns any bitcoin at all. Comparing the bitcoin adoption curve with those of other innovative technologies, we are actually just transitioning from the “innovators” stage into the “early adopters” stage. To coin a phrase: “you ain’t seen nothin’ yet”.

van_down_by_river

Dec 28, 2017 at 11:16 am

I don’t doubt that Bernanke, Yellen and Powell will be out on the circuit explaining that “no one knows why these manias and bubbles form or how they can be prevented”. The perpetrators of the madness always seem to escape unscathed. Even Greenspan, the original bubble king, seems to be out talking and trying to rewrite history and is having some success.

There is no Karma. Immoral behavior is rewarded. The people responsible for the insanity are rewarded. Bernanke now collects fat paychecks and bonuses from Citadel – Quid Pro Quo – he wins and we lose. Bernanke’s position is “chief economist” – why does an HFT firm need and economist (why would anyone need an economist).

Rates

Dec 28, 2017 at 3:31 pm

That’s why I always chuckle when the simpletons would trot lines such as “crime does not pay!!!”. Duh, if it does not pay, people won’t do them.

Enrique

Dec 28, 2017 at 12:41 pm

Someone needs to make a scam/hype/VC-nonsense bingo game.

This article by Wolf cites many that must be in:

Blockchain (obviously)
“Internet of Things”
Microfinance
“Coins” (when used in this context)
FinTech
AdTech (not in the article but clearly of the same genus)

Not to say – obviously – that all of the above things are inherently useless/scammy. But use of said terms is a big old red flag to the scam-aware I think.

Crypto and Blockchain are only zero sum games when they collapse. Until then tons of money are being printed and added to the economy, though its doubtful how much of it can actually be converted back into dollars the Fed should be worried, because next the bankers get into it, and the Fed has to bail them out, no choice. Bitcoin and Blockchain become the Fannie and Freddie in the next monetary debacle.

van_down_by_river

Dec 28, 2017 at 4:48 pm

Keep in mind that bitcoin has not (yet) sucked $300 billion out of the zero sum pie. It may be valued at $300 billion at the current trading price but until it has fully turned over at the present value (people have taken profits) there has not been $300 billion diverted into the scheme (and collected by speculators). Much of bitcoin is believed to be locked up by true believers and has never been sold to anyone at these ridiculous prices.

If a bunch of guys buy 22 million bitcoins for around $1 and one guy sells one bitcoin for $16,000 then only $22,016,000 would have been diverted into the scheme, but it would be valued at $300 billion. Of course that’s not the case, I’m just pointing out I don’t think anything close to $300 billion has been diverted into bitcoin (yet).

yes but bitcoin is money, and fungible, in theory 300 billion could be converted into NYSE stocks. It’s MONEY. How do you like me now?

Maximus Minimus

Dec 28, 2017 at 1:55 pm

The potential entertainment value of this is enormous. Sadly, you can’t sell or trade entertainment value. Maybe a book would do. May I suggest a future title: Wolf Richter – The blockchain revolution (or dust).

memento mori

Dec 28, 2017 at 1:56 pm

Great article. I would disagree only with the statement that we are in late stages of the bubble. Human greed and stupidity have no bounds.
What if this is just the beginning?
What if bitcoin is going to 1 million?
I think we havent seen anything yet and this mania has a long way to go.
What is the hard working family man do? No meanigful raise in years, interest rates at zero on his savings while prices of evth else keep slowly and continously creeping up. Thank you FED.

houtskool

Dec 28, 2017 at 2:52 pm

Crypto’s are a symptome of a desease. Most of finance is in bubble territory, adding some risk to an already doomed portfolio. Carrying capacity of debt is over the top, so jump in, the water is hot! FANG generation, millenials, nerds, techs. Trying to conquer the world, jackbooted by smart ops. Diagnosis cancer. Declining net energy will gut this herring too.

mean chicken

Dec 28, 2017 at 8:35 pm

Perhaps the real disease is drug addiction. I suspect this what what employers are really referring to when they claim there’s a shortage of qualified workers.

It’s a fault of political correctness taken too far, for instance like naming a planet Uranus as opposed to Urectum.

mean chicken

Dec 28, 2017 at 3:02 pm

One thing we can bank on is, even vicious leeches have a right to exist.

Stackers & speculators are betting short with the knowledge that they have every intention of being the first out the door when the stock has been pumped efficiently enough to dump the stock.

This is what stackers, traders, and speckers do. They are not long Blockchain tech, but they know easy money when they see it too.

The greater fools are expected to exit after peak whereas the stackers, speckers, and traders, will all exit before that.

The is Wall Street gambling 101, and there will be winners & losers, but that does not mean all the players are irrational, or overly irrationally exuberant. Expectation is the primary driver going into any sort of bet long, or short. Blockchain is a speculative environment that attracts traders, stackers, and speckers.

Banks will step into the fold in a few weeks given the irrational exuberance opportunity cost loss if they decide not to. Blockchain
irrationality will be a long term driver of major influence that is not about to ever disappear no matter how much it is frowned upon by those most accustomed to sound money principles, and fundamentals. This paradigmatic shift into Finance worlds unknown will turn the orthodoxy of Economic yesteryear on its tail.

Currency stability is nebulous at best.

Venezuela just went BitCoin, and has backed it with oil, and bullion.
USD petrodollars have now evidenced yet another hit to the petrodollar oil backed USD which is about as tenuous as Blockchain given the underlying fundamentals that are currently supporting USD primacy as world hegemon.

MOU

Michael Gorback

Dec 28, 2017 at 7:51 pm

Wow. I was about to change the name of my practice to The Laser Center for Pain Relief but “laser” is so 2010. I’m going to change it to The Blockchain Center for Pain Relief.

The entire crypto currency market cap is only around the same as google and 70 of apples market cap. Its peanuts in the Grand Scheme of things. I have asked over 100 people i know if they own any bitcoin and not a single one i spoke to has. Wall street is not in yet and the public is not in yet. For these reasons I don’t think its a bubble.

MDblockchain

Dec 29, 2017 at 2:14 pm

In the UK there’s a chain of frozen foodstores named ‘Iceland’.

During the last knockings of the dotcom boom some mastermind came up with the fabulous idea of renaming the chain ‘Iceland.com’. The whole caboodle was rebranded as such, delivery trucks and all.

Soon thereafter, the dotcom bubble burst. And very shortly after that, Iceland.com just became good ol’ Iceland again.

Colins2

Dec 30, 2017 at 1:09 am

Yes, you are right but Iceland was not part of the dotcom bubble so adding the ‘.com’ was only advertising.

I don’t recall Iceland being affected by the burst, apart from the cost of removing the ‘.com’ again